International Law

The Minister for Superannuation & Corporate Law's recent speech discussed why Treasury will conduct a review of the current disclosure requirements of equity derivatives:

Australian regulation of hedge funds is directed at disclosure requirements, along with their licensing and registration as managed investment schemes.

Such an approach seeks to ensure that there is sufficient disclosure by these funds to allow all investors ? particularly the more unsophisticated investors ? to make informed decisions about the risks involved...

One of the recent developments in financial markets relates to the substantial growth in equity derivative products. 

Because the owners of these instruments only have indirect economic ownership over the underlying securities, these equity derivatives have enabled market participants, including speculators and hedge funds, to avoid the disclosure requirements associated with direct stakes.

The use of these instruments have created uncertainty and facilitated speculative trading which puts individual shareholders at risk.  Companies don?t know who the ineffective owners are ? investors suffer from volatility as stock prices can be manipulated. 

To address these concerns, Australia intends to take a lead in increasing the transparency of its financial markets.  The Prime Minister recently announced that Australian Treasury would undertake an immediate review of the current disclosure requirements of equity derivatives.

While the Government is examining the disclosure requirements of financial instruments that are used by hedge funds, we do not try to dictate investment strategies or place undue limitations on hedge fund activities and their leveraging.  Doing so may result in unintended and possibly less efficient outcomes, which may be undesirable.

On the other hand, the investment strategies of hedge funds have associated risks, which can influence the performance of prudentially regulated institutions such as banks and superannuation funds.

For this reason, hedge funds need to provide a high level of transparency to their investors, particularly those that are prudentially regulated and of systemic importance, so that exposures to market risks can be accurately assessed and managed by those investors.